Pension companies are not evil. They are often huge (almost always) and frankly, I do rather think the metaphor of dinosaur may be very apt when attempting to reflect about their future. The world of pensions has changed enormously – truly it has… well to some extent surely…yes of course, and no. Eh? Well yes of course pensions have changed in the sense that the investment choices are now almost unlimited, the amount you can contribute has altered, charges have reduced, you don’t have to buy an annuity, final salary schemes are almost non existent to new members, tax relief, tax allowances have all changed. Technology, not Government has basically caused this (r)evolution.
…and yet, essentially a pension is just a savings plan, designed to provide an income when you stop earning money. I’d suggest that the basic point of a pension has been pretty static and not exactly “revolutionary”.
If you work for or run a pension company, then I’m sure that you are mindful of the enormous changes from a company that administers a pension.. to a company that administers… well a pension. A little unfair (no, a lot) but for most people in the pension world, it has always been about administering a scheme, doing the sums, the admin, the tidying up. The quill evolved into the typewriter and then the pc… now an app? Back in time, pension companies needed to produce c0mpelling reasons to use them – everything from performance to slick admin, financial clout…commission levels and so on. Sadly most pension companies haven’t been that great at managing or investing money and some are rather better at their “slick admin” than others… financial clout… not really sure what difference this makes when there is a constant background of M&A (merger and acquisition).. the goldfish bowl seems to have shrunk… or did the fish get bigger?… and as we know commission has been banned by the regulator (largely due to bias and mis-selling).
So, whilst I can understand that “original contract terms” mean that there are penalties for ceasing payments or moving to another pension company, this still drives me nuts. I know that the future is uncertain and that charges are, but come on… where is the logic in holding a duff fund because it costs even more to move away? new “pensions” aren’t really pensions. They are investment portfolios with a pension tax wrapper. When a decent financial planner is involved, the cost of investment is being reduced (as are your mistakes). If we are serious about restoring trust in financial services, old world pension companies would be wise to waive penalties and allow investors to move, perhaps at a modest admin cost. Your job is then done… unless you can contract your admin expertise and fund management skill to “win back” the investor. So when I see yet another transfer penalty of 15% or 20% it just winds me up. It is not helpful to anyone.
The day is coming, (r)evolution.
Dominic Thomas – Solomons IFA